Economics 221 (CRN Syllabus Spring 2014 - DENNIS PLOTT · (ECON 221) Macroeconomics in the World...

(ECON 221) Macroeconomics in the World Economy: Theory and Applications (Spring 2014) - Plott

Economics 221

Macroeconomics in the World Economy: Theory and Applications

(CRN – 26153)

Syllabus – Spring 2014

Instructor Dennis Plott

Instructor E-Mail

Instructor Office Location

Instructor Office Hours: Days & Times

Teaching Assistant (TA)

TA E-Mail

TA Office Location

TA Office Hours: Days & Times

[email protected]

University Hall (UH) 819

Monday, Wednesday, Friday 2:00 p.m. – 3:00 p.m.

Diana Salazar

[email protected]

University Hall (UH) 702

Tuesday 2:00 p.m. – 3:00 p.m.

Class Location Burnham Hall (BH) 308

Class Meeting: Days Monday, Wednesday, Friday

Class Meeting: Time 1:00 p.m. – 1:50 p.m.

Website https://blackboard.uic.edu

mailto:[email protected]

https://blackboard.uic.edu/


University Course Description

3 hours. Determinants of the level of economic activity, inflation, unemployment, international

economics, impact of domestic and world economy on business decisions, applications of the

theory. Same as INST 221.1

Course Goals

This is a course in intermediate macroeconomics with an emphasis on real world applications.

There are two main objectives for this course.

To develop simple models that can be usefully applied to generate realistic explanations

about the behavior of important macroeconomic variables such as output and income,

employment and unemployment, interest rates, the government budget balance, exchange

rates and the current account balance, and inflation.

To apply these models to understand and interpret current and historical macroeconomic

developments – including monetary and fiscal policy choices – and to make predictions

about future macroeconomic events, primarily in industrialized countries.

Responsibilities and Expectations

As the instructor, my responsibilities are to come to class prepared to teach; to organize

and present the material in a manner that facilitates your learning; to respond to and

encourage questions; to oversee grading of assignments; to be available during office

hours and for scheduled appointments; and to stimulate an enthusiasm for economics and

for learning.

As a student, your responsibilities are to come to class prepared to learn and to participate

in lectures; to complete the assigned readings before class (allowing time to re–read

difficult material); to complete all assignments on time; and to take all exams.

Prerequisites

ECON 130, or both ECON 120 and ECON 121; and MATH 1602.

Required Textbook

Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Macroeconomics (8th Edition3),

Prentice Hall, 2014; ISBN-10: 0132992280/ ISBN-13: 9780132992282

1 http://www.uic.edu/ucat/courses/ECON.html 2 http://www.uic.edu/ucat/courses/ 3 This is the textbook in the bookstore. If you wish to use a previous edition you are free to do so, but you alone are responsible for any and all differences.

http://www.uic.edu/ucat/courses/ECON.html

http://www.uic.edu/ucat/courses/


Supplementary (Optional) Periodicals, News, and Internet Resources

Greg Mankiw’s Blog: Random Observations for Students of Economics4

The Becker-Posner Blog: A Blog by Gary Becker and Richard Posner5

Financial Times6

The Wall Street Journal7

The Economist8

Vox9

Journal of Economic Perspectives10

Basis for Final Grade

Assessment Percentage of Grade

Problem Sets 10%

Exam I 20%

Exam II 20%

Exam III 20%

Final Exam 30%

100%

Grading Scale (%)

90 – 100 A

80 – 89 B

70 – 79 C

60 – 69 D

0 – 59 F

4 http://gregmankiw.blogspot.com/ 5 http://www.becker-posner-blog.com/ 6 http://www.ft.com 7 http://online.wsj.com 8 http://www.economist.com/ 9 http://www.voxeu.org/ 10 http://www.aeaweb.org/jep/

http://gregmankiw.blogspot.com/

http://www.becker-posner-blog.com/

http://www.ft.com/

http://online.wsj.com/

http://www.economist.com/

http://www.voxeu.org/

http://www.aeaweb.org/jep/


Advice for Success in Intermediate Macroeconomics

Mostly what follows will be known to many of you and applies to most other courses as

well. Here are a few guidelines of tried and true methods to do well. At the very least skim the

relevant sections of the textbook and notes before that material is covered in class. Come to class

and take as good of notes as possible. If using traditional pen/pencil and paper, as most of you

will, I suggest having a ruler (or straight-edge of some sort) and a couple different colored

pens/pencils for graphs. At least once a week review or preferably rewrite your notes. After a

particular section of the book has been covered in class, read (or re-read) that section of the

book. It is absolutely imperative that you do not fall behind in this course. I know many of you

work, have families, commute, take other courses, have social lives, watch Jersey Shore

marathons, etc. However, economics is a deceiving social science in that it builds up like a math

course. Note: this does not mean we will use a lot of math (we will not). But it is similar in that if

you do not fully understand a topic early on, then when we build on that material later you will

find it incredibly difficult to catch-up.

Grading

Three exams will be given during the semester. Exams will include true/false with

explanation, graphing, short–answer (economic rationale), and problem solving (calculation)

questions. No exams are dropped or replaced. No make-up exams will be given. Any missed

exam’s percentage toward your final grade will be added to the final exam’s weight. For

example, if you miss the second exam, then your final exam counts for 50 percent (30% + 20%)

of your final grade. Caveat: no student may miss more than one exam. More than one exam

missed, without verifiable appropriate documentation, will be recorded as a zero. The final exam

must be taken to receive credit in the course. All exams will be returned and complete solutions

will be given in a timely manner. The final exam is cumulative. Method II: If, and only if, a

student takes all of the exams, then half of the lowest exam grade’s weight will be added to the

final; i.e. the lowest exam will be worth 10% and the final exam will be worth 40% of your final

grade. This is an alternative final grade measure that is automatically calculated. The maximum

of the two calculated final grades is given.

The required textbook for the course contains many exercises at the end of each chapter.

Note: although useful and recommended, these questions are entirely optional. The “Analytical

Problems” are most closely related to the exam questions, but the other problems may prove

beneficial in gaining insight and experience with the material. I have matched each problem with

its relevant section and provide a brief description; cf. below.

There will be ten problem sets (one per topic). No problem sets are dropped or replaced.

Problem sets may be selectively graded, but grading will be relatively lighter compared with the

exams. The problem sets are composed of calculation, graphical, and conceptual questions. Note:

questions from past exams will be made available to you through the problem sets.

Late work of any sort will not be accepted under any circumstance.


Grade Dissemination

All grades will be posted on Blackboard. Due to privacy concerns grades will only be

given through Blackboard or in person. Phone, email, and other postings of student’s grades will

not occur per university policy. No one else other than the student in question is able to collect

graded material for someone else.

Technology, Media, and Classroom Etiquette

For any email correspondence, please, type “ECON 221” in the subject line. This is for

your benefit. I will attempt to answer any and all questions asked through email promptly, but I

may suggest for some questions to speak with me before/after class or during office hours since

it may be difficult to illustrate a concept through email; e.g., problems that benefit from the use

of graphs.

Laptops and iPad type devices are permitted for note-taking and course related material

only. If I discover laptops (iPads, etc.) are being used for non-classroom activities, I will not

allow them in the class. Non-classroom activities include, but are not limited to, checking your

Facebook page, emailing, looking at Reddit, online banking, bidding on cigars, playing Tetris,

looking at Brad Paisley’s website, and watching anime. No, I did not simply list asinine

examples, but have actually witnessed all of these activities during a class.

Calculators may be permitted on some exams. However, only basic calculators up to

scientific calculators. All that is “needed” are basic addition, subtraction, multiplication, and

division functions. Fancy-pants gadgets such as graphing calculators, cell phones, iPads, or

anything that can store or reference information are absolutely not allowed at any time during an

exam.

Cell phones, noise makers, and anything that may disturb the class are to be turned off or

silenced. Please, use common sense and be respectful to your fellow classmates. If these devices

become a problem in class there will be a draconian policy implemented; any student’s noise

maker that goes off in class automatically loses one-percentage point of their final grade for each

infraction. If you wish to text in class be prepared to answer a barrage of questions on the most

recent material covered. If this occurs more than once, the entire class will be given a quiz.

Please, do not eat food in class. It is distracting to me and your fellow students. Bottled

water, coffee, tea, soft drinks, etc. are fine, but please be considerate and do not leave trash. If

you spill something clean it up.

Try to arrive to class on time. I understand you may be late from time to time. If this

occurs please enter the room quietly so as not to disturb the class. The same consideration

applies if you must leave early.

If you miss class it is solely your responsibility to obtain the notes and/or materials given

from a classmate. Office hours are not a substitute for class time, but you are encouraged to

utilize office hours to clarify concepts after you have put forth effort on the material covered.

Actions that have negative effects on others will not be tolerated in the classroom. In

consideration of your fellow students and the instructor, please refrain from talking with your

neighbors during class.

It is your responsibility to check Blackboard on a regular basis.


Students with Disabilities

Students with disabilities, access needs, and/or questions regarding these topics may

contact the Disability Resource Center at (312) 413-2183 (voice) or (312) 413-0123 (TYY only).

More information can be found at http://www.uic.edu/depts/oaa/disability_resources/index.html

UIC Academic Calendar11

Day Date Month Event

Monday 13th January Instruction begins.

Monday 20th January Martin Luther King, Jr., Day. No classes.

Friday 24th January

Last day to complete late registration; last day to add a course(s) or

make section changes; last day to drop individual courses without

receiving W (Withdrawn) grade on academic record via Student

Self-Service. Last day to submit Withdraw from Term request via

Student Self-Service and receive 100% cancellation of tuition and

fees.

Friday 31st March Last day to file for graduation this term.

Friday 21st March Last day for undergraduate students to withdraw from individual

courses via college office.

Monday

– Friday

24th –

28th March Spring vacation. No classes.

Friday 2nd May Instruction ends.

Monday

– Friday

5th –

9th May Final examinations.

(Tentative) Schedule

Day Date Month Topic

Monday 13th January Syllabus

Topic 0: Course Overview

Wednesday 15th January Topic 1: Macroeconomics – Principles & Extentions

Friday 17th January Topic 1: Macroeconomics – Principles & Extentions

Monday 20th January Labor Day holiday. No classes.

Wednesday 22nd January Topic 1: Macroeconomics – Principles & Extentions

Friday 24th January Topic 1: Macroeconomics – Principles & Extentions

Monday 27th January Topic 2: Production, the Labor Market and Economic

Growth

Wednesday 29th January Topic 2: Production, the Labor Market and Economic

Growth

Friday 31st January Topic 2: Production, the Labor Market and Economic

Growth

Monday 3rd February Topic 3: Consumption, Saving, and Investment

Wednesday 5th February Topic 3: Consumption, Saving, and Investment

11 http://www.uic.edu/depts/oar/current_students/calendars/admin_calendar.html#next_semester

http://www.uic.edu/depts/oaa/disability_resources/index.html

http://www.uic.edu/depts/oar/registration/withdrawal_how-to.html

http://www.uic.edu/depts/oar/current_students/calendars/admin_calendar.html%23next_semester


Friday 7th February Topic 3: Consumption, Saving, and Investment

Monday 10th February Topic 4: Fiscal Policy

Wednesday 12th February Topic 4: Fiscal Policy

Friday 14th February Review for Exam I

Monday 17th February Exam I

Wednesday 19th February Topic 5: Money and the Federal Reserve Bank Policy

Friday 21st February Topic 5: Money and the Federal Reserve Bank Policy

Monday 24th February Topic 5: Money and the Federal Reserve Bank Policy

Wednesday 26th February Topic 6: Inflation and Unemployment in the Short Run

(Putting it All Together)

Friday 28th February Topic 6: Inflation and Unemployment in the Short Run


Monday 3rd March Topic 6: Inflation and Unemployment in the Short Run


Wednesday 5th March Topic 6: Inflation and Unemployment in the Short Run


Friday 7th March Topic 6: Inflation and Unemployment in the Short Run


Monday 10th March Topic 6: Inflation and Unemployment in the Short Run


Wednesday 12th March Topic 6: Inflation and Unemployment in the Short Run


Friday 14th March Review for Exam II

Monday 17th March Exam II

Wednesday 19th March Topic 7: A Deeper Look at Policy in Action

Friday 21st March Topic 7: A Deeper Look at Policy in Action

Monday 24th March Spring vacation. No classes.

Wednesday 26th March Spring vacation. No classes.

Friday 28th March Spring vacation. No classes.

Monday 31st March Topic 8: The International Economy

Wednesday 2nd April Topic 8: The International Economy

Friday 4th April Topic 8: The International Economy

Monday 7th April Topic 8: The International Economy

Wednesday 9th April Topic 8: The International Economy

Friday 11th April Topic 8: The International Economy

Monday 14th April Topic 8: The International Economy

Wednesday 16th April Topic 8: The International Economy

Friday 18th April Review for Exam III

Monday 21st April Exam III

Wednesday 23rd April Topic 9: Special Topics

Friday 25th April Topic 9: Special Topics

Monday 28th April Topic 9: Special Topics

Wednesday 30th April Review for Final Exam

Friday 2nd May Review for Final Exam

Monday 5th May Final Exam


1:00 p.m. – 3:00 p.m.

Academic Integrity

You are responsible for knowing and abiding by the policies contained in the University

of Illinois Student Disciplinary Policy12. Cheating, plagiarism, and academic dishonesty of any

sort are serious offenses. Anyone violating these or other standards of conduct will be subject to

the penalties discussed in the Student Disciplinary Policy. These penalties include, among others,

a failing grade on an assignment, a failing grade for the course, and dismissal from the

University.

Religious Holidays Observance Policy

In accordance to state laws, the faculty of the University of Illinois at Chicago shall make

every effort to avoid scheduling examinations or requiring student projects be turned in or

completed on religious holidays.

Students who wish to observe their religious holidays must notify the faculty member by

the tenth day of the term that they will be absent unless their religious holiday is observed on or

before the tenth day. In such cases, the student shall notify the faculty member at least five days

in advance of the date when he or she will be absent. The faculty member shall honor the

request and not penalize the student for missing class. If an examination or project is due during

the absence, the student shall be given an assignment equivalent to the one completed by those

students in attendance.

The following link (http://www.interfaithcalendar.org) lists religious holidays that can be

used as a reference guide for faculty and students for the coming academic year. The calendar is

meant only as a guideline and because of the diverse manners in which religious holidays are

observed, not every holiday constitutes an excused absence.

Course Flexibility

If it becomes necessary to add to, delete from, or otherwise alter this syllabus, then I

reserve the right to do as so as I deem fit. However, I will clearly communicate any and all

changes made to the class in a timely manner.

Course Outline and Suggested Problems

Topic 0: Getting in the Mood for Macro

Syllabus

Topic 1: Macroeconomics – Principles & Extentions

ABC 8e (2014): Chapters 1, 2, and 3.5

12 http://www.uic.edu/depts/dos/studentconduct.html

http://www.interfaithcalendar.org/

http://www.uic.edu/depts/dos/studentconduct.html


o 1.1 What Macroeconomics Is About

Analytical Problem 1 asks students to think about average labor

productivity and unemployment and their relationship to output.

Analytical Problem 2 asks students to think about the welfare

consequences of having a higher price level.

Numerical Problem 1 gives students practice calculating growth rates,

including the growth rate of average labor productivity and the inflation

rate.

Numerical Problem 2 serves two purposes: (1) to get students to look at

some real data on the economy and (2) to give them some idea how large

are the trade deficit and government budget deficit

o 1.2 What Macroeconomists Do

Analytical Problem 3 is an exercise in how to formulate and test a theory.

o 1.3 Why Macroeconomists Disagree

Analytical Problem 4 gives students practice in distinguishing positive

from normative analysis.

Analytical Problem 5 asks students to distinguish between how a classical

economist and a Keynesian economist would think about the same issue.

o 2.1 National Income Accounting: The Measurement of Production, Income, and

Expenditure

o 2.2 Gross Domestic Product

Analytical Problems 1 and 3 both discuss difficulties in counting

nonmarket items for GDP, including the important idea that GDP is not

the same as welfare.

Numerical Problems 1, 2, 3, 4, and 5 provide practice in working with the

national income and product accounts.

o 2.3 Saving and Wealth

Analytical Problem 4 has students examine how the uses-of-savings

identity would change if we redefined government saving so that

government investment was separate from government consumption

expenditures, so that 𝐺 = 𝐺𝐶𝐸 + 𝐺𝐼 and 𝑆𝑔𝑜𝑣𝑡 = (𝑇 − 𝑇𝑅 − 𝐼𝑁𝑇 ) −

𝐺𝐶𝐸.

o 2.4 Real GDP, Price Indexes, and Inflation

Numerical Problem 5 provides practice in calculating real and nominal

GDP and price indexes given several goods with different prices and

quantities in two years.

Numerical Problems 7 and 9 give practice in calculating inflation rates.

o 2.5 Interest Rates

Numerical Problem 8 provides practice in calculating real interest rates.

o 3.5 Unemployment

Analytical Problem 6 tests students’ ability to use these different

measures.

Numerical Problems 7 and 8 are quantitative exercises using the

unemployment and employment concepts.


Topic 2: Production, the Labor Market and Economic Growth

ABC 8e (2014): Chapters 3 and 6

o 3.1 How Much Does the Economy Produce? The Production Function

Numerical Problem 1 gives students practice working with a production

function.

Numerical Problem 2 gives students practice calculating the 𝑀𝑃𝐾 and

𝑀𝑃𝑁.

Analytical Problem 1 asks students to draw production functions and show

how they change when there are supply shocks.

o 3.2 The Demand for Labor

Numerical Problem 3 sets up an example in which students calculate 𝑀𝑃𝑁

and see what happens when the wage rate or price of the product change.

o 3.3 The Supply of Labor

Analytical Problem 7 examines how workers might change their labor

supply if there are changes in Social Security taxes.

Analytical problem 4 asks students to think about factors that shift an

individual’s labor supply curve.

o 3.4 Labor Market Equilibrium

Numerical Problems 4, 5, and 6 are exercises in which students are given

algebraic labor demand and supply curves and are asked to find the

equilibrium.

Analytical Problems 3 and 5 are comparative static exercises dealing with

labor market equilibrium.

Analytical Problem 2 asks students to show how different shocks to the

economy affect full-employment output.

o 3.5 Unemployment

Analytical Problem 6 tests students’ ability to use these different

measures.

Numerical Problems 7 and 8 are quantitative exercises using the

unemployment and employment concepts.

o 3.6 Relating Output and Unemployment: Okun's Law

Numerical Problems 9 and 10 are exercises dealing with Okun’s Law.

o 6.1 The Sources of Economic Growth

Numerical Problems 1 and 2 are growth accounting exercises.

o 6.2 Growth Dynamics: The Solow Model

Numerical Problem 3 and Analytical Problem 6 work with the per-worker

production function.

Numerical Problems 5, 6, and 7 look at equilibrium in the Solow model.

Analytical Problems 1, 2, 3, and 4 look at how changes in the

fundamentals affect an economy’s economic growth.

o 6.3 Government Policies to Raise Long-Run Living Standards


Topic 3: Consumption, Saving, and Investment

ABC 8e (2014): Chapters 4 including Appendix 4.A, 9.2

o 4.1 Consumption and Saving

Numerical Problem 1 explores how changes in income, future income,

wealth, and interest rates affect consumption.

o 4.2 Investment

Numerical Problems 2 and 4 give students practice in working with the

marginal product of capital and the user cost of capital.

Numerical Problem 3 applies the user-cost concept to the purchase or

rental of a home.

o 4.3 Goods Market Equilibrium

Numerical Problem 5 and 6 and Analytical Problem 5 examine what

happens when government spending changes.

Analytical Problems 1, 2, 3, and 4 all looks at shocks to the economy and

changes in variables needed to restore equilibrium.

o 4.Appendix A Formal Model of Consumption and Saving

Analytical Problem 7 looks at what happens to the budget line when the

interest rate on borrowing differs from the interest rate on lending.

Numerical Problem 8 deals with the income effect on consumption and

saving.

Numerical Problem 9 deals with borrowing constraints.

Analytical Problem 6 asks the student to show the income and substitution

effects for a borrower.

o 9.2 The IS Curve: Equilibrium in the Goods Market

Numerical Problem 1 asks students to find the IS curve, given equations

for consumption and investment, and looks at how a change in

government purchases shifts the curve.

Topic 4: Fiscal Policy

ABC 8e (2014): Chapter 15 (skip 15.4; potentially a special topic), 9.2





o 15.1 The Government Budget: Some Facts and Figures

Analytical Problem 1 looks at the reasons for grants-in-aid.

Numerical Problems 1, 2, 6, and 7, and Analytical Problem 4 deal with

various aspects of the deficit and primary deficit.

Analytical Problem 2 asks students to look at actual data on the

government budget deficit and see whether the rise in deficits since 1979

was because of spending increases or revenue decreases.

o 15.2 Government Spending, Taxes, and the Macroeconomy

Numerical Problem 3 looks at how automatic stabilizers affect the budget

deficit over the business cycle.


Numerical Problem 4 and Analytical Problem 3 look at the effects of tax

rates on labor supply.

Numerical Problem 5 looks at tax smoothing and labor supply.

o 15.3 Government Deficits and Debt

o 15.4 Deficits and Inflation

Numerical Problems 8 and 9 look at seignorage.

********************************** Exam I ************************************

Topic 5: Money and the Federal Reserve Bank Polic

ABC 8e (2014): Chapters 7, 9.3, 14.1, and 14.2

o 7.1 What Is Money?

Analytical Problem 1 looks at portfolio changes and how they affect M1

and M2

o 7.2 Portfolio Allocation and the Demand for Assets

o 7.3 The Demand for Money

Numerical Problem 1 is an empirical exercise calculating velocity from a

money-demand equation.

Analytical Problem 2 asks for explanations for the upward trend in M1

velocity prior to the 1980s.

o 7.4 Asset Market Equilibrium

Numerical Problem 2 is an exercise in calculating the equilibrium interest

rate.

For exercises dealing with price level determination, see Numerical

Problem 3 and 5 and Analytical Problem 4.

o 7.5 Money Growth and Inflation

Numerical Problem 4 gives practice in using elasticities to predict

inflation.

Analytical Problem 3 shows how expected inflation depends on the money

supply.

o 9.3 The LM Curve: Asset Market Equilibrium

Numerical Problem 2 shows the derivation of the LM curve from a money

demand equation and looks at how changes in money demand and supply

shift the curve.

o 14.1 Principles of Money Supply Determination

Numerical Problem 1 gives students practice dealing with bank balance

sheets.

Numerical Problems 2 and 3 deal with the money multiplier.

o 14.2 Monetary Control in the United States

Analytical Problem 1 looks at various effects on the money supply, some

through changes in the Fed’s balance sheet.

Analytical Problem 3 examines how various shocks shift the LR curve and

how the economy responds.


Topic 6: Inflation and Unemployment in the Short Run (Putting it All Together)

ABC 8e (2014): Chapters 8-11

o 8.1 What Is a Business Cycle?

o 8.2 The American Business Cycle: The Historical Record

o 8.3 Business Cycle Facts

Analytical Problem 3 looks at whether output or total hours worked is

more volatile, given that average labor productivity is procyclical.

Analytical Problem 2 asks for an explanation of why expenditures on

durable goods are more volatile over the business cycle than expenditures

on nondurables and services.

o 8.4 Business Cycle Analysis: A Preview

o 9.1 The FE Line: Equilibrium in the Labor Market





o 9.3 The LM Curve: Asset Market Equilibrium

Numerical Problem 2 shows the derivation of the LM curve from a money

demand equation and looks at how changes in money demand and supply

shift the curve.

o 9.4 General Equilibrium in the Complete IS-LM Model

Analytical Problem 2 examines the effect on the real interest rate of a

permanent oil price shock compared to a temporary oil price shock.

o 9.5 Price Adjustment and the Attainment of General Equilibrium

Analytical Problem 3 looks at this short-run equilibrium.

Numerical Problems 3 and 4 and Analytical Problem 1 look at the

complete 𝐼𝑆 − 𝐿𝑀 model, including adjustment of the price level to

restore equilibrium.

o 9.6 Aggregate Demand and Aggregate Supply

Numerical Problem 5 illustrates the effects of monetary and fiscal policy

using the model.

Numerical Problem 6 and Analytical Problems 4 and 5 deal with various

aspects of the algebraic version of the 𝐼𝑆 − 𝐿𝑀 model.

o 10.1 Business Cycles in the Classical Model

Numerical Problem 1 looks at the relationship between real wages and

employment over the business cycle and the issue of whether the labor-

supply curve should be flat or steep to be consistent with the data.

Numerical Problem 6 is a coin-flipping exercise to show that random

shocks can lead to big aggregate movements.

Analytical Problems 2, 3, and 5 deal with various aspects of the classical

𝐼𝑆 − 𝐿𝑀 model.

Numerical Problem 7 looks at the behavior of the unemployment rate due

to a temporary productivity shock when there are many people in

transition between being employed and unemployed.

o 10.2 Money in the Classical Model


Analytical Problem 4 works out another example of how reverse causation

could occur through firms’ demand for money for transactions and the

Fed’s money-supply response.

Numerical Problems 2 and 3 examine price level effects in the classical

model.

o 10.3 The Misperceptions Theory and the Nonneutrality of Money

Analytical Problem 1 contracts the effects of a change in the future

marginal product of capital in an RBC model to that in a misperceptions

model.

Numerical Problems 4 and 8 look at the misperceptions theory and

unanticipated compared to anticipated changes in the money supply.

o 11.1 Real-Wage Rigidity

Analytical Problem 5 takes a more sophisticated look at the labor market,

dividing it into one sector with an efficiency wage and another sector in

which the real wage equates labor demand and supply.

Numerical Problem 1 looks at the determination of the efficiency wage

and employment.

o 11.2 Price Stickiness

o 11.3 Monetary and Fiscal Policy in the Keynesian Model

Numerical Problem 2 and Analytical Problems 1 and 2 use the Keynesian

𝐼𝑆 − 𝐿𝑀 model.

Numerical Problem 4 uses the Keynesian 𝐴𝐷 − 𝐴𝑆 framework.

o 11.4 The Keynesian Theory of Business Cycles and Macroeconomic Stabilization

Analytical Problem 4 looks at the benefits of using government purchases

to combat recessions.

Analytical Problem 3 looks at how lags in the effect of policy can

influence decisions about how to use policy.

o 11.A

Numerical Problem 5 is an exercise dealing with the rigid nominal-wage

version of the Keynesian model.

********************************** Exam II ***********************************

Topic 7: A Deeper Look at Policy in Action

ABC 8e (2014): Chapter 12 and 14.3

o 12.1 Unemployment and Inflation: Is There a Trade-Off?

Analytical Problem 3 looks at similar analysis in a Keynesian model.

Numerical Problems 2 and 4 and Analytical Problem 2 look at the

misperceptions model and how it generates behavior like the Phillips

curve.

Numerical Problem 1 uses the expectations-augmented Phillips curve.

Analytical Problem 1 looks at possible ways to change the natural rate of

unemployment.

Numerical Problem 3 looks at the effects of an aggregate demand shock

and an aggregate supply shock on the Phillips curve.


o 12.2 The Problem of Unemployment

Analytical Problem 6 looks at events that change the natural rate of

unemployment.

o 12.3 The Problem of Inflation

Analytical Problem 4 looks at the costs of anticipated and unanticipated

inflation in a cashless society.

Analytical Problem 5 looks at what happens if the government uses wage

and price controls, but continues to use expansionary policies.

o 14.3 The Conduct of Monetary Policy: Rules Versus Discretion

Analytical Problem 4 looks at rules and commitment applied to a

noneconomic situation.

Analytical Problem 2 examines the ability of the Taylor rule to stabilize

the economy, while Numerical Problem 4 provides practice for students in

calculating the rule and how the target for the Fed funds rate changes in

response to a shock.

Topic 8: The International Economy

ABC 8e (2014): Chapter 5 and 13

o 5.1 Balance of Payments Accounting

Analytical Problem 1 gives students practice in making entries into a

balance of payments table.

Analytical Problem 2 gives students practice with offsetting transactions

in the balance of payments accounts, while Numerical Problem 1 has them

calculating various important balances.

Numerical Problem 6 looks at the balance of payments when there are

internationally traded assets.

o 5.2 Goods Market Equilibrium in an Open Economy

o 5.3 Saving and Investment in a Small Open Economy

Numerical Problems 2 and 3 look at saving and investment in small open

economies.

o 5.4 Saving and Investment in Large Open Economies

Numerical Problem 4 and Analytical Problems 3, 5, and 6 are all exercises

dealing with large open economies.

o 5.5 Fiscal Policy and the Current Account

Analytical Problem 4 asks students to work out the case of a large open

economy with an increase in the government budget deficit.

Analytical problem 4 looks at the relationship between government budget

deficits and the current account balance for a large open economy.

o 13.1 Exchange Rates

Numerical Problem 1 is a simple example of appreciation and

depreciation.

Numerical Problem 2 gives an example of how a real depreciation can

cause net exports to fall.

o 13.2 How Exchange Rates Are Determined: A Supply-and-Demand Analysis

Analytical Problem 4 looks at the effects of a supply shock on net exports.


o 13.3 The IS-LM Model for an Open Economy

Analytical Problem 1 looks at the effect of trade barriers that reduce

imports.

o 13.4 Macroeconomic Policy in an Open Economy with Flexible Exchange Rates

Numerical Problems 3 and 4 illustrate the effects of an increase in

government purchases on the exchange rate and net exports.

Analytical Problem 2 uses a classical model to show what happens to

capital flows in a classical model with circumstances similar to those of

the United States in the 1980s.

o 13.5 Fixed Exchange Rates

Numerical Problem 5 is an exercise in finding the level of the nominal

money supply that fixes the exchange rate at a sustainable level.

Analytical Problem 3 looks at the effects of different macroeconomic

policies when exchange rates are fixed.

********************************* Exam III ***********************************

Economics 221 (CRN Syllabus Spring 2014 - DENNIS PLOTT · (ECON 221) Macroeconomics in the World...

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Transcript of Economics 221 (CRN Syllabus Spring 2014 - DENNIS PLOTT · (ECON 221) Macroeconomics in the World...